China construction projects resume in sign of economic reopening
Chinese manufacturers of construction machinery have raised prices as sales take off, in an early sign of how economic activity is resuming after weeks of shutdown during the coronavirus epidemic.
Some of China’s leading heavy equipment manufacturers have announced 5-10 per cent price increases since sales hit a record high in March, when infrastructure construction rebounded.
The national lockdown pummelled the world’s second-largest economy, with gross domestic product contracting 6.8 per cent in the first quarter of this year. But manufacturers hope the uptick in equipment sales heralds a sustained recovery.
At Anhui Heli Co, a forklift truckmaker in the central city of Hefei, workers have begun taking weekend shifts since March to meet growing demand. An executive at Heli said sales were “very strong” as infrastructure investment “bounced back”.
Sales of excavators rose 12 per cent year on year in March following a 51 per cent plunge in the previous month, according to official data.
Hengli Hydraulic Co, based in the eastern province of Jiangsu, reported a more than 50 per cent jump in orders of high-pressure tanks, a key component of excavators, this month from a year earlier.
“This points to strong sales of construction machinery down the road,” said a company official.
Makers of construction machinery have been quick to profit from the trend as nearly a dozen excavator makers, led by industry leaders Sany and Zoomlion, raised prices.
“Our clients are so eager to start new construction that they don’t mind paying extra,” said an executive at Liugong Machinery, which this month raised prices by up to 10 per cent on a range of products including loaders and excavators.
A Chinese excavator usage index compiled by CICC, an investment bank, was 13.7 per cent up in March following a 22.4 per cent drop in the first two months of this year.
CICC expects the figure to keep “beating expectations”, as Beijing counts on infrastructure investment to bolster the economy.
Yet analysts warn the recovery could lose steam as local governments, the main financial backer of infrastructure projects, grapple with a shortage of capital.
Beijing has relaxed bank lending and boosted infrastructure bond issuance in a bid to revive investment. But it has stopped short of embarking on an all-out credit binge for fear of exacerbating China’s already mounting debt pressure.
That has made the recovery in construction an unbalanced one, with a few well-off provinces reporting strong activity and poorer ones struggling to catch up.
“China’s fixed investment is returning to the normal level of 2 per cent growth from a 20 per cent decline,” said Larry Hu, an economist at Macquarie Group. “Don’t expect a double-digit increase as Beijing isn’t ready to launch a massive stimulus programme.”
China’s fiscal revenue dropped more than a quarter in March as local businesses had a hard time reopening following the disease.
Feng Gang, founder of Jishou Information & Technology Co, a Tianjin-based construction consultancy that works with local governments, said infrastructure financing was the key to how long the construction machinery boom could continue.
“It would be difficult to continue the construction spree when local governments are overstretched and private capital has little interest in low-return projects,” said Mr Feng.